SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
[ Amendment No._______]
Filed by the Registrant __X__
Filed by a Party other than the Registrant ____
Check the appropriate box:
___ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
_X_ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
VACU-DRY COMPANY
______________________________________________________________
(Name of Registrant as Specified in Its Charter)
______________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
_X_ $125 per Exchange Act Rules O-11(c)(1)(ii),14a-6(i)(2) or
Item 22(a)(2) of Schdule 14A.
___ $500 per each party to the controversy pursuant to Exhange
Act Rule 14a-6(i)(3).
___ Fee computed on table below per Echange Act Rules
14a-6(i)(4) and O-11.
1) Title of each class of securities to which transaction
applies:
_____________________________________________________
2) Aggregate number of securities to which transaction
applies:
_____________________________________________________
3) Per unit price or underlying value of transaction
computed pursuant to Exchange Act Rule O-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
_____________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________
5) Total fee paid:
_____________________________________________________
___ Check box if any part of the fee is offset as provided by
the Exchange Act Rule O-11(a)(2) and identify the filing
for which the offsetting fee paid was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:_____________________________
2) Form Schedule or Registration Statement No.:________
3) Filing Party:_______________________________________
4) Date Filed:_________________________________________
"Since 1933"
N O T I C E
of
Annual Meeting
and
Proxy Statement
VACU-DRY COMPANY
Annual Meeting of
Shareholders
Sebastopol, California
October 30, 1996
VACU-DRY COMPANY
7765 Healdsburg Avenue
Sebastopol, California 95472
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS AND PROXY STATEMENT
October 30, 1996
To The Shareholders of Vacu-dry Company:
Notice is hereby given that the Annual Meeting of the
Shareholders of Vacu-dry Company (the "Company") will be held
on Wednesday, October 30, 1996 at 10:00 a.m., at the Executive
Room, Fountain Grove Inn, 101 Fountain Grove Parkway,
Santa Rosa, California for the following purposes:
1. To elect six (6) directors to serve for the ensuing year and
until their successors are elected.
2. To approve the Company's 1996 Stock Option Plan.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on
September 13, 1996, as the record date for determining which
Shareholders will be entitled to receive notice of, and to vote
at, the meeting or any adjournment thereof.
By Order of the Board of Directors,
Esther K. Castain
Corporate Secretary
Sebastopol, California
September 30, 1996
<PAGE>
VACU-DRY COMPANY
7765 Healdsburg Avenue
Sebastopol, California 95472
PROXY STATEMENT
For Annual Meeting of Shareholders
October 30, 1996, 10:00 a.m.
General
This Proxy Statement is furnished by the Board of Directors of
Vacu-dry Company (the "Company") to solicit
Shareholder Proxies to be voted at the Annual Meeting of
Shareholders to be held on Wednesday, October 30, 1996 at
10:00 a.m., at the Executive Room, Fountain Grove Inn, 101
Fountain Grove Parkway, Santa Rosa, California, and at any
adjournment thereof. Any Shareholder giving a Proxy may revoke
it any time before it is voted by filing with the Secretary
of the Company either a written revocation or another duly
executed Proxy bearing a later date. Proxies may also be
revoked by any Shareholder present at the meeting who expresses
a desire to vote his or her shares in person. This mailing
of Proxy Statements and Proxy cards commenced approximately
September 30, 1996.
Voting
The Board of Directors has fixed the close of business on
September 13, 1996, as the Record Date for the determination
of Shareholders entitled to receive notice of, and to vote at,
the Annual Meeting or any adjournment thereof. As of
September 13, 1996, 1,633,354 shares of common stock were
outstanding, and no shares of any other class of stock were
outstanding.
In all actions taken by Company Shareholders, other than the
election of Directors, each Shareholder is entitled to one
vote for each share held on the record date. In the election of
Directors, however, Shareholders have cumulative voting
rights, which means that each Shareholder is entitled to a
number of votes equal to the number of his or her shares
multiplied by the number of Directors to be elected (six). A
Shareholder may cast all of his or her votes for a single
candidate, or may distribute votes among as many candidates as
he or she may see fit. No Shareholder may cumulate votes
for a candidate, however, unless the name(s) of the
candidate(s) have been placed in nomination prior to the voting
and the Shareholder has given notice at the Meeting, prior to
the voting, of the intention to cumulate votes. If one
Shareholder has already given such a notice, all Shareholders
may cumulate their votes for candidates in nomination without
further notice.
Revocability of Proxies
Any person giving a proxy in the form accompanying this
statement has the power to revoke such proxy at any time
before its exercise. The proxy may be revoked by filing with
the Secretary of the Company at the Company's principal
executive office an instrument of revocation or a duly executed
proxy bearing a later date, or by filing written notice of
revocation with the secretary of the meeting prior to the
voting of the proxy or by voting the shares subject to the
proxy by written ballot.
Solicitation
The Company will bear the entire cost of solicitation,
including preparation, assembly, printing, and mailing of this
proxy statement, the proxy card, and any additional material
furnished to Shareholders. Copies of solicitation material will
be furnished to brokerage houses, fiduciaries, and custodians
holding shares in their names which are beneficially owned by
others to forward to such beneficial owners. In addition, the
Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented
by telephone, telegram, or personal solicitation by directors,
officers, or employees of the Company. No additional
compensation will be paid for any such services. Except as
described above, the Company does not intend to solicit proxies
other than by mail
Shareholder Proposals for Next Annual Meeting
Proposals of Shareholders that are intended to be presented at
the Company's 1997 annual meeting of Shareholders must
be received by the Company no later than June 1, 1997 in order
to be included in the proxy statement and proxy relating to
that meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
A beneficial owner of a security includes any person who
directly or indirectly has or shares voting power and/or
investment power with respect to such security. Voting power is
the power to vote or direct the voting of securities and
investment power is the power to dispose of or direct the
disposition of securities. The following tables, based in part
upon information supplied by officers, directors and principal
Shareholders, set forth certain information regarding the
ownership of the Company's voting securities as of September
13, 1996 by (i) all those known by the Company to be
beneficial owners of more than five percent of any class of the
Company's voting securities; (ii) each director; (iii) each
Named Executive Officer; and (iv) all executive officers and
directors of the Company as a group. Unless otherwise
indicated, each of the Shareholders has sole voting and
investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
Security Ownership of Certain Beneficial Owners(a)
Amount of Direct Common Percent
Name and Address of Beneficial Owner Stock Beneficial Ownership of Class(b)
D. P. Boothe, Jr.(c) 170,000 10.4%
33 San Carlos
Sausalito, CA 94965
Craig R. Stapleton(d) 227,167(d) 13.9%
135 East Putnam Avenue
Greenwich, CT 06830
(a) Security ownership information for beneficial owners is
taken from statements filed with the Securities and Exchange
Commission pursuant to Sections 13(d), (f) and (g) and
information made known to the Company.
(b) As of September 13, 1996, 1,633,354 shares of Common Stock
were issued and outstanding.
(c) Mr. D. P. Boothe, Jr. died on September 11, 1996. Includes
50,000 shares held by Catherine Boothe, Mr. Boothe's
widow, and 100,000 shares held jointly by Mr. and Mrs. Boothe.
(d) Includes 92,117 shares owned by Mr. Stapleton or trusts
for the benefit of Mr. Stapleton, 45,100 shares as trustee of a
trust of which Mr. Stapleton is a residual beneficiary, 29,440
as trustee of a trust for the benefit of his children and to
which Mr. Stapleton disclaims any beneficial interest, and
60,500 shares owned by Mr. Stapleton's wife and children to
which Mr. Stapleton disclaims any beneficial interest. Does not
include 41,100 shares owned by a foundation of which
Mr. Stapleton's mother is trustee and 13,500 shares owned
directly and beneficially by Mr. Stapleton's mother.
Security Ownership of Directors and Executive Officers
The table below presents the security ownership of the
Company's Directors, Nominees, Named Executive Officers and
all directors and executive officers as a group as of September
13, 1996:
Amount of Common Shares
Name of Beneficial Owner Beneficially Owned(a) Percent of Class(b)
D. P. Boothe, Jr.(c) 170,000(d) 10.4%
Kenneth P. Gill 45,100(e) 2.8%
Gary L. Hess 14,800 *
Edward Koplovsky 37,866 2.3%
Roger S. Mertz 52,766(f) 3.2%
Craig R. Stapleton 227,167(g) 13.9%
Donal Sugrue 28,790(h) 1.8%
Joseph G. Tonascia(c) 2,700 *
All directors and executive 591,393 36.2%
officers as a group (11 persons)
* Does not exceed 1% of the referenced class of securities.
(a) Shares listed in this column include all shares held by
the named individuals and all directors and executive officers
as a group in their own names and in street name and also
includes all shares allocated to the accounts of the named
individuals and all directors and executive officers as a group
under the Company's Employee Stock Purchase Plan.
(b) Calculation based on 1,633,354 shares of Common Stock
outstanding as of September 13, 1996.
(c) Mr. D. P. Boothe, Jr. died on September 11, 1996. Mr.
Joseph G. Tonascia has determined not to seek reelection to the
Board of Directors.
(d) Includes 50,000 shares held by Catherine Boothe, Mr.
Boothe's widow, and 100,000 shares held jointly by Mr. and
Mrs. Boothe.
(e) Includes 42,000 shares held by the Kenneth P. Gill and
Mary Margaret Gill Revocable Trust of which Mr. Gill is the
trustee and 3,100 shares held by the Kenneth and Mary Gill
Grandchild Trust of which Mr. Gill is the trustee.
(f) Includes 6,000 shares held by Mr. Mertz as trustee and to
which Mr. Mertz disclaims any beneficial interest. Also
includes 2,250 shares held as custodian for a child of Mr.
Mertz and 3,500 shares held by a son of Mr. Mertz and to
each of which Mr. Mertz disclaims any beneficial interest.
(g) Includes 92,117 shares owned by Mr. Stapleton or trusts
for the benefit of Mr. Stapleton, 45,100 shares as trustee of a
trust of which Mr. Stapleton is a residual beneficiary, 29,440
as trustee of a trust for the benefit of his children and to
which Mr. Stapleton disclaims any beneficial interest, and
60,500 shares owned by Mr. Stapleton's wife and children to
which Mr. Stapleton disclaims any beneficial interest. Does not
include 41,100 shares owned by a foundation of which
Mr. Stapleton's mother is trustee and 13,500 shares owned
directly and beneficially by Mr. Stapleton's mother.
(h) Includes 26,760 shares held by the Sugrue 1992 Family
Trust of which Mr. Sugrue is a Trustee
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, six (6) Directors are to be elected by
the Shareholders to serve until the next Annual Meeting or
until the election and qualification of their successors. The
Board's proxy holders (named on the enclosed Proxy card)
intend to vote all shares for which Proxies are granted to
elect the following six nominees selected by the Company's
Board of Directors, and intend to vote such shares cumulatively
if necessary to elect some or all of such nominees. All of
the Board's nominees for Director were elected Directors by the
Shareholders at the 1995 Annual Meeting, except for Mr.
Hess who was elected to the Board on August 14, 1996.
If any of the Board's nominees refuses or is unable to serve as
a Director (which is not now anticipated), the Board's
Proxy holders intend to nominate and vote for such other
person(s) as they believe will best serve the interests of the
Company. Any Shareholder may nominate a candidate for Director
from the floor at the Meeting. Such nominee must consent to
serve, if elected, prior to voting on his name. The Board of
Directors has no reason to believe that any substitute
nominee or nominees will be required.
The six nominees for Director who receive the most affirmative
votes will be elected Directors. Votes against a candidate and
votes withheld shall have no effect on the election result,
though applicable securities laws and regulations may require
that the number of such votes subsequently be disclosed to the
Company's Shareholders under certain circumstances.
<PAGE>
MANAGEMENT RECOMMENDS A VOTE FOR EACH
OF THE NOMINEES FOR DIRECTOR NAMED BELOW
Nominees
The table below indicates the respective nominee's position
with the Company, age, and year in which he first became a
director.
Director
Name, Position and Background Age Since
70 1972
Kenneth P. Gill, Director. Mr. Gill is retired. Formerly he
was Assistant to the Chairman (July - December 1990) and
President and Chief Executive Officer of the Company
(1972-1990).
44 1996
Gary L. Hess, President and Chief Executive Officer and
Director. Mr. Hess was elected President and Chief
Executive Officer of the Company on May 1, 1996. Prior
thereto he was a Senior Vice President of Dole Food
Company, Inc. (fresh and processed fruit) (1993-1996);
President of Cadence Enterprises, Inc. (water conservation
products) and The Marketing Partnership 1992-1993; and
Director of Marketing, E. & J. Gallo Winery (wine and
distilled spirits (1987-1992).
57 1993
Edward Koplovsky, Director. Mr. Koplovsky is Chairman and
Chief Executive Officer of Clermont, Inc., a specialty fruit
processing concern.
52 1993
Roger S. Mertz, Director. Mr. Mertz is an attorney-at-law. He
is a member of the San Francisco, California law firm of
Severson & Werson, counsel to the Company
51 1995
Craig R. Stapleton, Director. Mr. Stapleton is President of
Marsh & McLennan, Real Estate Advisors, Inc. (real estate
management). Mr. Stapleton is a director of Allegheny
Properties, Inc. (real estate investments), and a director of
T.B. Woods, Incorporated (industrial power transmission
products).
65 1982
Donal Sugrue, Director. Mr. Sugrue serves as a Consultant to
the Company and prior to May 1, 1996 was President and
Chief Executive Officer.
Except as noted, the above persons have been engaged in the
principal occupations identified above for more than the past
five years.
Filings by Directors, Executive Officers and Ten Percent
Holders
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's executive officers, directors, and persons
who own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange
Commission. Executive officers, directors and greater than ten-
percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received
by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, the
Company believes that, during fiscal year 1996 all filing
requirements applicable to its executive officers, directors,
and greater than ten-percent beneficial owners were complied
with.
Board Committees and Meetings
The Board of Directors met five times during the fiscal year
ending June 30, 1996. The Company's Board of Directors
has authorized four standing committees.
Executive Committee. As prescribed by the bylaws of the
Company, the executive committee has the authority of the
Board of Directors for the management of the business and
affairs of the Company between meetings of the Board of
Directors. The members of the committee are Messrs. Hess,
Koplovsky, Mertz, and Stapleton. The Executive Committee
held three meetings during the fiscal year.
Compensation Committee. The function of the compensation
committee is to develop and recommend to the full Board
compensation arrangements, including bonuses, Stock
Appreciation Rights and Stock Options for Executive Officers
and other key employees and to advise the chief executive
officer on policy matters concerning officers' compensation.
The members of the committee are Messrs. Gill (Chairman),
Koplovsky and Tonascia. The Compensation Committee held one
meeting during the fiscal year.
Audit Committee. The function of the audit committee is to
recommend to the full Board the accounting firm to be
retained as the Company's independent auditors and the price to
be paid to the firm, and to consult with the auditors
regarding the plan of audit, the results of the audit and the
audit report, and the adequacy of internal accounting controls.
The current members of the committee are Messrs. Mertz
(Chairman), Sugrue and Tonascia. The Audit Committee held one
meeting during the fiscal year.
Retirement Savings Committee. The function of the retirement
savings committee is to direct the management of the
Company's Retirement, Savings and Profit Sharing Plan. The
committee met once during the year. The members of the
Committee are Messrs. Tonascia (Chairman), Mertz and Koplovsky.
Effective October 30, 1996, the Retirement Savings
Committee will be combined with the Compensation Committee.
The full Board acts as the nominating committee for the
Directors of the Company
EXECUTIVE COMPENSATION
Summary Compensation of Named Executives
The Summary Compensation Table shows certain compensation
information for each person who served as Chief Executive
Officer during the fiscal year and the Company's most highly
paid executive officers (collectively referred to as
the "Named Executive Officers"). Compensation data for other
executive officers is not presented in the charts because
aggregate compensation for such executive officers did not
exceed $100,000 for services rendered in all capacities during
fiscal year 1996. Compensation data is shown for the fiscal
years ended June 30, 1996, 1995 and 1994. This information
includes the dollar value of base salaries, bonus awards, the
number of SARs granted, and certain other compensation, if
any, whether paid or deferred.
Summary Compensation Table(a)
Long Term All Other
Annual Compensation Compensation Compensation(b)
Awards
Name and Principal Position Year Salary($)(c) Bonus($) Options/SARs(#) ($)
Gary L. Hess(d) 1996 25,000 -0- 89,474 856
President and CEO 1995 -0- -0- -0- -0-
1994 -0- -0- -0- -0-
Donal Sugrue(d) 1996 147,607 -0- -0- 11,190
President, Chief Executive 1995 140,802 -0- -0- 7,604
Officer and Director 1994 165,091 29,100 -0- 30,142
(a) Amounts shown include cash and non-cash compensation
earned with respect to the year shown above.
(b) All other Compensation is described below. Life insurance
premium payments are calculated as compensation by
multiplying the proportion of benefits payable to the
employee's estate by the total premiums paid in the fiscal
year. Also includes Value Realized from SARs of $13,500 for Mr.
Sugrue in 1994 and $3,187.50 in 1996.
(c) 1995 amounts include $6,423 and 1996 amounts include
$16,940 with respect to Mr. Sugrue representing payments in
lieu of vacation not taken and under the Company's Wellness
Time Plan.
(d) Mr. Hess was appointed President and Chief Executive
Officer on May 1, 1996 upon Mr. Sugrue's retirement.
Retirement and
Exec. Officer Year Profit Sharing Plan Base 401k Bonus 401k Life Ins.
Prem.
G. Hess 1996 -0- -0- -0- 214
1995 -0- -0- -0- -0-
1994 -0- -0- -0- -0-
D. Sugrue 1996 -0- 5,838 -0- 2,164
1995 -0- 5,440 -0- 2,164
1994 5,739 7,429 1,310 2,164
SAR Exercises in Last Fiscal Year and Year-End SAR Values
The following table summarizes for the Named Executive Officers
the number of SARs, if any, exercised during the
fiscal year ended June 30, 1996, the aggregate dollar value
realized upon exercise, the total number of unexercised SARs
held at June 30, 1996 and the aggregate dollar value of
in-the-money, unexercised SARs held at June 30,1996. Value
realized upon exercise is the difference between the fair
market value of the underlying stock on the exercise date and
the exercise price of the SAR. Value of unexercised,
in-the-money SARs at fiscal year-end is the difference between
the exercise price and the fair market value of the underlying
stock on June 30, 1996, which was $5.00 per share.
Aggregated SAR Exercises in Last Fiscal Year
and Fiscal Year-End SAR Values Table
Number of Value of
Unexercised Unexercised
SARs at Fiscal In-The-Money SARs
Year End (#) at Fiscal Year
End ($)
Shares Subject Value Exercisable/ Exercisable/
Name to SARs (#) Realized ($) Unexercisable Unexercisable
Gary L. Hess -0- $-0- -0- -0-
Donal Sugrue 4,500 $3,187.50 -0- -0-
Option Grants Last Year
The following table shows information regarding grants of stock
options made to the Named Executive Officers under
the Company's 1996 Stock Option Plan during the fiscal year
ended June 30, 1996. The amounts shown for each Named
Executive Officer as potential realizable values are based on
the arbitrarily assumed annualized rates of stock appreciation
of 0, 5 and 10 percent over the term of the options, which
would result in stock prices of approximately $5.00, $8.14 and
$12.97. No gain to the optionee is possible without an increase
in stock price which will benefit all shareholders
proportionately.
Potential Realizable Value
Individual Grants at Assumed Annual Rates
of Stock Price
Appreciation for Option Term
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C>
% Of Total
Options Options Granted Exercise or
Granted to Employees Base Price Market Expiration
Name (#) in Fiscal Year ($/Sh) Price Date 0%($) 5%($)(a) 10%($)(a)
Gary H. Hess 89,474 100% $5.00 $5.00 5/1/2006 -0- $281,421 $713,176
</TABLE>
(a) Based on 10-year option term and annual compounding,
results in total appreciation of 62.9% (at 5% per year) and
159.4% (at 10% per year)
Compensation of Directors
Outside Directors receive $300 per month for serving as
Directors and are paid $600 for each Board meeting attended
and $400 for each committee meeting attended. Directors' fees
paid by the Company during fiscal year 1996 totaled
$52,000. Executive Officers of the Company who also serve on
the Board of Directors are not specifically compensated
for duties as directors.
Mr. Mertz, a member of the San Francisco law firm of Severson &
Werson, served as the Company's legal counsel
during fiscal 1996 and is expected to be retained through
fiscal 1997.
Employment Contracts
The Company entered into an employment agreement with Mr. Hess
dated March 14, 1996, pursuant to which Mr. Hess
is employed by the Company as its President and Executive
Officer. Under the agreement, Mr. Hess is entitled to an annual
base salary of $150,000, subject to annual review, an incentive
bonus during the first year of $75,000, one-half of which is
at the discretion of the Compensation Committee of the Board of
Directors and one-half of which is based on the Company
achieving pre-tax return equal to at least a 12% return on
adjusted shareholders' equity and other requirements as may be
agreed. Mr. Hess was granted an option to purchase 89,474
shares of the Company's common stock at $5.00 per share, the
fair market value of a share of the Company's common stock on
May 1, 1996. The options were granted pursuant to the
Company's 1996 Stock Option Plan which the Shareholders are
being asked to approve at the Annual Meeting of
Shareholders. Under the agreement Mr. Hess serves at will
provided that in the event of termination of his employment by
the Company prior to April 30, 2000 for any reason other than
cause, he is entitled to twelve months continued salary at a
rate of $150,000 per year. In addition, Mr. Hess is entitled to
the reimbursement of relocation expenses, temporary living
expense, an automobile allowance and certain other fringe
benefits.
During the fiscal year Mr. Sugrue was employed by the Company
pursuant to an Employment Agreement dated February
8, 1983. The agreement terminated on September 26, 1995, the
date on which Mr. Sugrue reached age 65.
Compensation Committee Report
This report is provided by the Compensation Committee of the
Board of Directors (the "Committee") to assist
stockholders in understanding the Committee's objectives and
procedures in establishing the compensation of Vacu-dry
Company's Chief Executive Officer and other executive officers.
The Committee, made up of non-employee Directors, is
responsible for establishing and administering the Company's
executive compensation program. None of the members of
the Committee is eligible to receive awards under the Company's
incentive compensation programs.
Vacu-dry's executive compensation program is designed to
motivate, reward, and retain the management talent needed to
achieve its business objectives and maintain its
competitiveness in the food processing industry. It does this
by utilizing competitive base salaries that recognize a
philosophy of career continuity and by rewarding exceptional
performance and accomplishments that contribute to the
Company's success.
Compensation Philosophy and Objective
The philosophical basis of the compensation program is to pay
for performance and the level of responsibility of an
individual's position. The Committee finds greatest value in
executives who possess the ability to implement the
Company's business plans as well as to react to unanticipated
external factors that can have a significant impact on
corporate performance. Compensation decisions for all
executives, including the Named Executive Officers, are based
on the same criteria. These include quantitative factors that
reflect improvements in the Company's short and long-term
financial performance, as well as qualitative factors which
reflect the strength of the Company over the long term, such as
demonstrated leadership skills and the ability to deal quickly
and effectively with difficulties which sometimes arise.
The Committee believes that compensation of Vacu-dry's key
executives should:
1. Link rewards to business results and stockholder returns;
2. Encourage creation of stockholder value and achievement of
strategic objectives;
3. Maintain an appropriate balance between base salary and
short-and long-term incentive opportunity;
4. Attract and retain, on a long-term basis, highly qualified
executive personnel; and
5. Provide total compensation opportunity that is competitive
with that provided by competitors in the food processing
industry, taking into account relative company size and
performance as well as individual responsibilities and
performance.
Key Elements of Executive Compensation
Vacu-dry's executive compensation program consists of three
elements: Base Salary, Short-Term Incentives and Long-
Term Incentives. Payout of short-term incentives depends on
corporate performance. Payout of the long-term incentives
depends on performance of Vacu-dry stock.
Base Salary
A competitive base salary is crucial to support the philosophy
of management development and career orientation of
executives. Salaries are targeted to pay levels of the
Company's competitors and companies having similar
capitalization, revenues, etc. Executive salaries are reviewed
annually. Assessment of an individual's relative performance is
made annually based on a number of quantitative factors such as
stock price, earnings and revenues, as well as qualitative
factors which include initiative, business judgment, technical
expertise, and management skills.
Short-Term Incentive
Short-term awards to executives are made in cash to recognize
contributions to the Company's business during the past
year. The Company maintains a Bonus Plan as an incentive for
executive officers of the Company. The bonus an executive
receives is dependent on individual performance and level of
responsibility
Long-Term Incentive
Long-term incentive awards provided by shareholder-approved
compensation programs are designed to develop and
maintain strong management through share appreciation awards.
The Company's 1985 Stock Appreciation Rights Plan
creates incentives for executives and other key employees by
providing them with an opportunity to indirectly participate in
the appreciation in the market value of the Company's common
stock.
In 1993 the directors approved the adoption of the 1994
Employee Stock Purchase Plan (the "Plan"). All employees,
including executive officers, may purchase shares of the
Company's Common Stock at a discount of 85% of the market
value on the first or last business day of the quarterly
offering period, whichever is lower. The plan became effective
January 1, 1994.
In 1996 the directors approved the 1996 Stock Option Plan
authorizing the issuance of 90,000 shares of the Company's
Common Stock to aid the Company in attracting and retaining key
employees and non-employee consultants. For information
concerning the plan, see Proposal 2, Approval of 1996 Stock
Option Plan.
1996 Chief Executive Officer Compensation
Mr. Sugrue's base salary for fiscal 1996 was $136,080. During
the fiscal year ending June 30, 1996, Mr. Sugrue also
received a total of $5,838 as contributions to his Base 401K.
The Committee believes Mr. Sugrue's total compensation
package is appropriate for Mr. Sugrue's level of responsibility
and is well within competitive practice.
Mr. Hess' compensation during the 1996 fiscal year was based on
an annual salary of $150,000 per year. The committee
believes such salary and the other terms of Mr. Hess'
compensation package is appropriate to his level of experience
and responsibility and was necessary in order to recruit him to
serve as the Company's President and Chief Executive Officer.
Compensation Committee:
Kenneth P. Gill
Edward Koplovsky
Joseph G. Tonascia
Share Investment Performance
The following graphs compare the total return performance of
the Company for the periods indicated with the performance of
the NASDAQ Market Index and the performance of a Peer Index
comprised of companies having the same Standard Industrial
Classification ("SIC") number as the Company. The Company's
shares are traded over-the-counter on the NASDAQ National
Market under the symbol "VDRY". The Peer Index includes the
publicly traded stocks of Curtice-Burns Foods Inc., H.J. Heinz
Co., Seneca Foods Corp., J.M. Smucker Co. Class A, J.M. Smucker
Class B, Stokely U.S.A. Inc. and Vacu-dry Company. The NASDAQ
Index includes only shares of companies traded on the NASDAQ
National Market System or over-the-counter, which have been
publicly traded continuously since June 30, 1991. The total
return indices reflect reinvested dividends and are weighted on
a market capitalization basis at the time of each reported data
point.
Performance Graph
Year (June 30) 1991 1992 1993 1994 1995 1996
Vacu-dry Company $100.00 $175.00 $237.50 $232.53 $143.70 $134.12
NASDAQ Market Index $100.00 $107.75 $132.27 $145.04 $170.11 $214.14
Peer Index $100.00 $105.75 $104.74 $ 95.65 $134.20 $141.70
PROPOSAL 2
APPROVAL OF 1996 STOCK OPTION PLAN
During 1996, the Board of Directors approved the 1996 Stock
Option Plan (the "Plan") authorizing the issuance of
90,000 shares of the Company's Common Stock to aid the Company
in attracting and retaining key employees and non-
employee consultants by providing them a proprietary interest
in the success of the Company. The Plan was adopted for the
principal purpose of assisting the Company in recruiting a new
President and Chief Executive Officer of the Company. Mr.
Gary L. Hess, who was appointed the Company's President and
Chief Executive Officer on May 1, 1996, has been granted
substantially all of the options presently authorized under the
Plan. The Compensation Committee of the Board of Directors is
presently evaluating all of the Company's executive
compensation programs. In the future, the Board of
Directors, subject to shareholder approval, may increase the
number of shares authorized under the Plan, but no decision in
this regard has been made.
The following is a summary of the material features of the
Plan. The full text of the Plan is attached as Exhibit A, and
the following summary is qualified in its entirety by reference
to it.
Proposal
The shareholders are being requested to consider and approve
the Plan. The affirmative vote of the holders of a majority
of the shares represented and voting at the meeting is required
for approval.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2
General
The Plan provides for the granting of two types of options:
"incentive stock options" and "nonqualified stock options."
The incentive stock options only are intended to qualify as
"incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended. The Plan is not
qualified under Section 401(a) of the Internal Revenue Code
nor is it subject to the provisions of ERISA.
Eligibility
Options may be granted under the Plan to all key employees,
including officers and directors, and to non-employee
consultants of the Company; provided however that incentive
stock options may only be granted to employees, and not to
any non-employee consultants.
Administration
Administration of the Plan is by a Stock Option Plan Committee
comprised of at least three members of the Board, each
of whom must be disinterested as defined in the regulations
under the Securities Exchange Act of 1934. Under the Plan, the
Committee has the power, subject to the provisions of the Plan,
to do the following: grant options; determine the option
price and term of each option, the persons to whom and the time
or times at which options shall be granted, and the number
of shares to be subject to each option; interpret the Plan;
prescribe rules and regulations relating to the Plan; and make
all other determinations deemed necessary or advisable for the
administration of the Plan. Members of the Committee will
receive no compensation for their services in connection with
the administration of the Plan
Option Terms
The maximum term of each option is ten years except that, in
the case of a participant who owns stock possessing more
than ten percent of the voting rights of the Company's
outstanding capital stock (a "10% Holder"), the maximum term of
an incentive stock option is five years. Options granted under
the Plan must vest at a rate no less that 25% each year over
four years from the grant date, although the vesting schedule
may be more rapid. Options granted under the Plan are not
transferable other than by will or the laws of descent and
distribution, and during an optionee's life are exercisable
only by the optionee. Options granted under the Plan generally
terminate three months after the optionee ceases to be employed
by the Company, a parent or subsidiary, except if termination
is due to the employee's permanent and total disability, in
which event the option may be exercised within a year of
termination. In the event of the employee's death, the
employee's estate has 12 months to exercise the option.
Exercise Price
The exercise price of all nonstatutory stock options granted
under the Plan must be at least equal to 85% of the fair
market value of the underlying stock on the grant date, or 110%
of fair market value in the case of a 10% Holder. The
exercise price of all incentive stock options granted under the
Plan must be at least equal to the fair market value of the
underlying stock on grant date, or 110% of fair market value in
the case of a 10% Holder. With respect to incentive stock
options, the aggregate fair market value (determined at the
time of grant) of stock which becomes exercisable for the first
time in any year cannot exceed $100,000. The Plan permits the
exercise of options for cash or stock, other consideration
acceptable to the Committee, or pursuant to a deferred payment
arrangement.
Changes in Stock and Effect of Certain Corporate Events
If there is any change in the Common Stock subject to the Plan
or subject to any option granted under the Plan, whether
through merger, consolidation, reorganization,
recapitalization, dividend or otherwise, the Plan provides that
an appropriate adjustment be made by the Committee to the
aggregate number of shares subject to the Plan and the number
of shares and the price per share of stock subject to the
outstanding options.
In the event of dissolution, liquidation or specified types of
merger of the Company, the options granted under the Plan
terminate unless the surviving entity assumes the outstanding
options or substitutes similar options.
Amendment and Termination
The Board of Directors may amend or terminate the Plan at any
time, except that any amendment which would (i) increase the
aggregate number of shares of Common Stock issued under the
Plan, or (ii) materially increase the benefits accruing to
participants, or (iii) materially modify the eligibility
requirements will only be effective if approved by the
Company's shareholders within 12 months before or after
adoption. Unless terminated earlier, the Plan will terminate on
March 15, 2006.
Federal Income Tax Consequences
Incentive stock options granted under the Plan are intended to
be eligible for the favorable income tax treatment
accorded incentive stock options under Section 422 of the
Internal Revenue Code. Nonqualified stock options granted
under the Plan are subject to federal income tax treatment
pursuant to rules governing options that are not incentive
stock options.
Incentive Stock Options. There are generally no federal income
tax consequences to the optionee by reason of the grant
or exercise of an incentive stock option. The exercise of an
incentive stock option may increase the optionee's alternative
minimum tax liability, if any, however.
If an optionee holds stock acquired through exercise of an
incentive stock option for more than two years from the date on
which the option is granted and more than one year from the
date on which the shares are transferred to the optionee upon
exercise of the option, any gain or loss on a disposition of
such stock will be capital gain or loss. Any capital gain or
loss realized by an optionee on a qualifying or disqualifying
(see below) disposition of stock acquired through exercise of
an incentive stock option will be long-term or short-term
depending on whether the stock was held for more than one year.
Generally, if the optionee disposes of the stock before the
expiration of either of the holding periods described above (a
"disqualifying disposition"), at the time of disposition the
optionee will realize taxable ordinary income equal to the
lesser of (i) the excess of the stock's fair market value on
the date of exercise over the optionee's adjusted basis in the
stock, or (ii) the optionee's actual gain, if any, on the
purchase and sale. Any additional gain or any loss upon the
disqualifying disposition will be capital gain or loss.
Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject
to Section 16(b) of the Exchange Act.
There are no federal income tax consequences to the Company by
reason of the grant or exercise of an incentive stock
option. To the extent the optionee recognizes ordinary income
by reason of a disqualifying disposition, the Company will
be entitled (subject to the requirement of reasonableness and,
perhaps, in the future, the satisfaction of its withholding
obligation) to a corresponding business expense deduction in
the tax year in which the disposition occurs.
Nonqualified Stock Options. There are normally no tax
consequences to the optionee or the Company by reason of the
grant of a nonqualified stock option. Upon exercise of a
nonqualified stock option, the optionee normally recognizes
ordinary income in an amount by which the fair market value of
the stock on the date of exercise exceeds the exercise
price. Generally with respect to employees, the Company is
required to withhold from wages an amount based on the
ordinary income realized by the exercise. Subject to the
reasonableness requirement and the satisfaction of its
withholding obligation, the Company will be entitled to a
business expense deduction in the amount of the taxable
ordinary income recognized by the optionee.
Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the
selling price and the sum of the amount paid for such shares
plus any amount recognized as ordinary income upon exercise
of the option. Such gain or loss will be long or short-term
depending on whether the stock was held for more than one year.
Slightly different rules apply to optionees who acquire stock
subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
There are no tax consequences to the Company by reason of the
disposition of stock acquired upon exercise of a nonqualified
option.
Use of Proceeds
All proceeds from the sale of shares pursuant to options
granted under the Plan constitute general funds of the Company.
Indemnification of Committee
Under the terms of the Plan, members of the Committee are
entitled to be indemnified by the Company against costs and
expenses reasonably incurred in connection with any action or
proceeding brought by reason of their action or failure to act
under or in connection with the Plan or any rights granted
thereunder.
NEW PLAN BENEFITS
Vacu-dry Company 1996 Stock Option Plan
Number of Common Shares
Optionee Underlying Stock Options
Gary L. Hess 89,474
President and Chief Executive Officer
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent certified public accountants are
chosen by the Board of Directors based on the recommendation of
its audit committee. The independent certified public
accountants for the Company's fiscal year ended June 30, 1996,
were Arthur Andersen LLP.Arthur Andersen LLP has been
recommended by the audit committee and selected by the Board
for the current fiscal year. Representatives of that firm will
be present at the Annual Meeting, and will have the opportunity
to make a statement and to respond to appropriate questions.
AVAILABILITY OF ADDITIONAL INFORMATION
The Company's Annual Report to Shareholders is being mailed
with the Proxy Statement to Shareholders who were holders of
record on September 13, 1996.
OTHER MATTERS AND SHAREHOLDERS' PROPOSALS
The Board of Directors presently knows of no other matter that
may come before the Annual Meeting. If any other matters should
properly come before the Meeting, however, the Board's proxy
holders intend to vote on such matters in accordance with their
best judgment.
By Order of the Board of Directors
Esther K. Castain
Corporate Secretary
September 30, 1996
EXHIBIT A
VACU-DRY COMPANY
1996 STOCK OPTION PLAN
1. Purpose and Scope. The purposes of this Plan are to induce
persons of outstanding ability and potential to join and
remain with Vacu-dry Company (the "Company"), to provide an
incentive for such employees as well as for non-employee
consultants to expand and improve the profits and prosperity of
the Company by enabling such persons to acquire proprietary
interests in the Company, and to attract and retain key
personnel through the grant of Options to purchase shares of
the Company's Common Stock. Unless otherwise stated herein, the
term "Option" includes both Incentive Stock Options and
Non-qualified Stock Options.
2. Definitions. Each term set forth in this Section 2 shall
have the meaning set forth opposite such term for purposes of
this Plan unless the context otherwise requires, and for the
purposes of such definitions, the singular shall include the
plural and the plural shall include the singular:
(a) "Affiliate" shall mean any parent corporation or
subsidiary corporation of the Company as those terms are
defined in Sections 424(e) and (f) respectively of the Internal
Revenue Code of 1986, as amended.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Committee" shall mean the Stock Option Plan Committee
appointed by the Board, which shall be comprised of at
least three disinterested members of the Board.
(d) "Company" shall mean Vacu-dry Company, a California
corporation.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Fair Market Value" for a share of Stock means the price
that the Board or the Committee acting in good faith
determines, through any reasonable valuation method (including
but not limited to reference to prices existing in
any established market in which the Stock is traded), to be the
price at which a share of Stock might change hands
between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having
reasonable knowledge of the relevant facts.
(g) "Option" shall mean a right to purchase Stock granted
pursuant to the Plan.
(h) "Option Price" shall mean the purchase price for Stock
under an Option, as determined in Sections 7 _ "Incentive
Stock Options" _ and 8 _ "Non-Incentive Stock Options" _ below.
(i) "Participant" shall mean an employee or non-employee
consultant to the Company to whom an Option is granted
under the Plan.
(j) "Plan" shall mean this Vacu-dry Company 1996 Stock Option
Plan.
(k) "Stock" shall mean the no par value Common Stock of the
Company.
(l) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
3. Administration. The Plan shall be administered by the
Board or a designated Committee (each are referred to herein as
the "Board"). Two members of the Board shall constitute a
quorum for the transaction of business. The Committee
shall have full authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to
grant Options, to determine the Option Price and term of each
Option, the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of
Stock to be covered by each Option; to interpret the Plan;
to prescribe, amend, and rescind rules and regulations relating
to the Plan; to determine the terms and provisions of the
option agreements (which need not be identical) entered into
connection with the grant of Options under the Plan; to
unilaterally modify outstanding Options in any respect that is
not adverse to the Participants, including the right to
accelerate the exercisability of Options, and to waive minor
conditions and requirements; and to make all other
determinations deemed necessary or advisable for the
administration of the Plan. The Board may delegate to one or
more of its members, or to one or more agents, such
administrative duties as it may deem advisable, and the Board
or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect
to any responsibility the Board or such person may have under
the Plan. The Board may employ attorneys, consultants,
accountants, or other persons, and the Board shall be entitled
to rely upon the advice, opinions, or valuations of such
persons. All actions taken and all interpretations and
determinations made by the Board in good faith shall be final
and binding upon all Participants, the Company, and all other
interested persons. No member of the Board shall be
personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan; and
all members of the Board shall be fully protected by the
Company in respect of any such action, determination, or
interpretation.
4. Shares Subject to the Plan. Subject to adjustment under
the provisions of Section 14 _ "Effect of Change in Stock
Subject to Plan" _ of the Plan, the maximum number of shares of
Stock that may be optioned or sold under the Plan is
Ninety Thousand (90,000). Such shares may be authorized by
unissued shares of Stock of the Company, or issued
shares of Stock reacquired by the Company, or shares purchased
in the open market expressly for use under the Plan. If
for any reason any shares of Stock as to which an Option has
been granted cease to be subject to purchase thereunder,
then (unless the Plan shall have been terminated) such shares
shall become available for subsequent awards under this
Plan in the discretion of the Board. The Company shall, at all
times while the Plan is in force, reserve such number of
common shares as will be sufficient to satisfy the requirements
of all outstanding Options granted under the Plan.
5. Eligibility; Factors to be Considered in Granting Options.
(a) Incentive Stock Options may be granted to any regular
full-time employee (including officers and directors) of
either the Company or any Affiliate of the Company.
(b) Non-qualified Stock Options may be granted to: (i) any
regular full-time employee (including officers and
directors) of either the Company or any Affiliate of the
Company; and (ii) any non-employee consultant of the
Company, provided that bona fide services shall be rendered by
such consultants and such services must not be in
connection with the offer or sale of securities in a
capital-raising transaction.
(c) In determining to whom options shall be granted and the
number of shares of Stock to be covered by each Option,
the Board shall take into account the nature of the
Participants' duties, their present and potential contributions
to the success of the Company, and such other factors as it
shall deem relevant in connection with accomplishing the
purposes of the Plan. The Board shall also determine the
time(s) of grant, the type and term of Option granted, and
the time(s) of exercise, in whole or part. A Participant who
has been granted an Option under the Plan may be
granted new Options, which may be in addition to prior Options
granted under the Plan or may be in exchange for
the surrender and cancellation of prior Options having a higher
or lower option price and containing such other
terms as the Board may deem appropriate.
6. Terms and Conditions of Options.
(a) General. Options granted pursuant to the Plan shall be
authorized by the Board and shall be evidenced by
agreements ("Option Agreements") in such form as the Board from
time to time shall approve. Such Option Agreements shall comply
with and be subject to the following general terms and
conditions, and shall also comply with and be subject to the
provisions of Section 7 relating to Incentive Stock Options or
Section 8 relating to Non-qualified Stock Options, as
applicable, as well as such other terms and conditions as set
forth in this Plan and as the Board may deem desirable, not
inconsistent with the Plan
(b) Employment Agreement. The Committee may, in its
discretion, include in any Option granted under the
Plan a condition that the Participant shall agree to remain in
the employ of, and/or to render services to, the
Company for a period of time (specified in the Option
Agreement) following the date the Option is granted. No
such Option Agreement shall impose upon the Company any
obligation to employ and/or retain the Participant for
any period of time.
(c) Manner of Exercise. A Participant may exercise an Option
by giving written notice of such exercise to the
Company at its principal office, attention to the Secretary,
and paying the Option Price either (i) in cash in full at
the time of exercise, or (ii) in the discretion of the Board:
(A) by delivery of other Common Stock of the Company, which
(1) either has been owned by the Participant for more than six
(6) months on the date of surrender or was not acquired
directly or indirectly, from the Company; and (2) has a fair
market value on the date of surrender equal to the Option Price
of the Stock as to which the Option is being exercised,
(B) by an approved deferred payment schedule or other
arrangement, which arrangement shall be contained in
writing in the Option Agreement, in which event an interest
rate will be stated which is not less than the rate
then specified which will prevent any imputation of higher
interest under Section 483 of the Code, or
(C) in any other form of legal consideration acceptable to the
Committee at the time of grant or exercise.
(d) Time of exercise. Promptly after the exercise of an Option
and the payment of the Option Price, either in full or
pursuant to the approved payment schedule, the Participant
shall be entitled to the issuance of a stock certificate
evidencing ownership of the appropriate number of shares of
Stock. A Participant shall have none of the rights of a
shareholder until shares are issued to him/her, and no
adjustment will be made for dividends or other rights for
which the record date has occurred prior to the date such stock
certificate is issued.
(e) Number of shares. Each Option shall state the total number
of shares of Stock to which it pertains.
(f) Option Period, Vesting, and Limitations on Exercise. The
Board may, in its discretion, provide that an Option may
not be exercised in whole or part for any period(s) of time
specified in the Option Agreement, except that: (i) no
Option may be exercised until at least six (6) months have
elapsed from the date the Option is granted; and (ii) the
right to exercise must be at the rate of at least 25% per year
over four (4) years from the date the Option is
granted. Unless otherwise approved by the Committee and set
forth in the Option Agreement, each Option granted
under the Plan may be exercised for 25% on the first
anniversary of the grant, and an additional 25% for the next
three (3) anniversaries. No Option may be exercised after the
expiration of ten years from the grant date. No
Option may be exercised as to less than one hundred (100)
shares at any one time, or the remaining shares covered
by the Option if less than one hundred (100).
7. Incentive Stock Options. The Board may grant Incentive
Stock Options ("ISOs") which meet the requirements of
Section 422 of the Code, as amended from time to time.
(a) ISOs may be granted only to employees of the Company or
its Affiliates.
(b) Each ISO granted under the Plan must be granted within 10
years from the date the Plan is adopted or is approved
by the shareholders of the Company, whichever is earlier.
(c) The purchase price shall not be less than the fair market
value of the common shares at the time of grant, except
that the purchase price shall be 110% of the fair market value
at such time in the case of any person who owns stock
possessing more than 10% of the total combined voting power of
all classes of stock of the Company or its Affiliates at the
time of grant.
(d) No ISO granted under the Plan shall be exercisable more
than 10 years from the date of grant, except that in the case
of any person who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Company or its Affiliates at the time of grant, no ISO shall be
exercisable more than five years from the date of grant.
(e) To the extent that the aggregate fair market value of
Stock (determined at the time of grant) with respect to which
ISOs are exercisable for the first time by any individual
during any calendar year under all plans of the Company
and its subsidiaries exceeds $100,000, such Options shall be
treated as non-qualified stock Options, but only to
the extent of such excess. Should it be determined that an
entire Option or any portion thereof does not qualify for
treatment as an ISO by reason of exceeding such maximum, or for
any other reason, such Option or portion shall be considered a
non-qualified stock Option.
8. Non-qualified Stock Options. The Board may grant
Non-qualified Stock Options ("NSOs") under the Plan in addition
to or in lieu of Incentive Stock Options. NSOs are not intended
to meet the requirements of Section 422 of the Code, and
shall be subject to the following terms and conditions:
(a) NSOs may be granted to any eligible Participant.
(b) The purchase price of the shares shall be determined by
the Board in its absolute discretion, but in no event shall
such purchase price be less than 85% of the fair market value
of the shares at the time of grant. In the case of any
person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or
its Affiliates at the time of grant, the price shall be 110% of
the fair market value, determined at the time of grant.
(c) NSOs shall not be exercisable more than ten years from the
date of grant.
9. Transferability. Options granted under this Plan shall not
be transferable other than by will or by the laws of descent
and distribution, and during a Participant's life shall be
exercisable only by such Participant. Options granted under
this Plan shall not be subject to execution, attachment or
other process. In the event of (i) any attempt by a Participant
to alienate, assign, pledge, hypothecate or otherwise dispose
of an Option granted pursuant to the Plan, except as provided
for herein; or (ii) the levy of any attachment, execution or
similar process upon the rights or interest hereby conferred,
the Company may terminate the Option by notice to the
Participant and it shall thereupon become null and void.
10. Termination of Employment. Options held by employees,
including directors, shall terminate three months after
termination of employment with the Company or Affiliate,
unless:
(a) If termination is due to employee's permanent and total
disability within the meaning of Section 22(e)(3) of the
Code, the Option may be exercised at any time within one year
following termination.
(b) The Option Agreement by its terms specifies whether it
shall terminate later than three (3) months after
termination of employment. If the Option may be exercised later
than three months following termination, any portion exercised
beyond three months shall be a non-qualified stock option. This
paragraph shall not be construed to extend the term of any
Option nor to permit anyone to exercise the Option after
expiration of its term.
(c) Options granted under this Plan shall not be affected by
any change of duties or position of the Participant so long
as Participant continues to be a regular, full-time employee of
the Company. Any Option, or any rules and regulations relating
to the Plan, may contain such provisions as the Board shall
approve with reference to the determination of the date
employment terminates. Nothing in the Plan or in any Option
granted pursuant to the Plan shall confer upon any Participant
any right to continue in the employ of the Company or shall
interfere in any way with the right of the Company to terminate
such employment at its will at any time.
(d) Notwithstanding any other provisions set forth in this
Section 10 or in the Plan, if the Participant shall: (i) commit
any act of malfeasance or wrongdoing affecting the Company or
any Affiliate; (ii) breach any covenant not to compete, or
employment contract, with the Company or any Affiliate; or
(iii) engage in any conduct that would warrant the
Participant's discharge for cause (excluding general
dissatisfaction with the performance of the Participant's
duties, but including any act of disloyalty or any conduct
clearly tending to bring discredit upon the Company or any
Affiliate), any unexercised portion of the Option shall
immediately terminate and be void.
11. Rights in the Event of Death. If an employee dies during
the term of this Option, his/her legal representative or
representatives, or the person or persons entitled to do so
under the employee's last will and testament or under
applicable intestate laws, shall have the right to exercise
this Option, but only for the number of shares as to which the
employee was entitled to exercise this Option on the date of
his death, and such right shall expire and this Option shall
terminate twelve (12) months after the date of Grantee's death
or on the expiration date of this Option, whichever date
is sooner. In all other respects, this option shall terminate
upon such death.
12. Leaves of Absence. For purposes of the Plan, an employee
on approved leave of absence from the Company shall be
considered as currently employed for 90 days following
beginning the leave or for so long as his/her right to
reemployment is guaranteed by statute or contract, whichever is
longer.
13. Effect of Change in Stock Subject to Plan. In the event
that outstanding common shares are hereafter changed by reason
of reorganization, consolidation, recapitalization,
reclassification, stock split, combination of shares, stock
dividends and the like, the Board shall make adjustments as it deems
appropriate in the number and/or kind of shares or securities
for which Options may thereafter be granted under the Plan and
for which Options then outstanding under this Plan may
thereafter be exercised. Any such adjustment in outstanding
Options shall be made without changing the aggregate
exercise price applicable to the unexercised portions of such
Options. Such adjustments shall be made by or under
authority of the Company's Board whose determinations as to
what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
14. Corporate Reorganizations. Following the merger of one or
more corporations into the Company, or any consolidation
of the Company and one or more corporations in which the
Company is the surviving corporation, the exercise of
Options under this Plan shall apply to the surviving
corporation.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a
result of which the outstanding securities of the class then
subject to Options hereunder are changed into or exchanged for
cash or property or securities not of the Company's issue, or
upon a sale of substantially all of the property of the Company
to, or the acquisition of stock representing more than eighty
percent (80%) of the voting power of the stock of the Company
then outstanding by another corporation or person, the Plan
shall terminate, and all Options theretofore granted hereunder
shall terminate, unless provision be made in writing in
connection with such transaction for the continuance of the
Plan and/or for the assumption of Options theretofore granted,
or the substitution for such Options of Options covering the
stock of a successor employer corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices, in which event the Plan
and Options theretofore granted shall continue in the manner
and under the terms so provided. If the Plan and unexercised
Options shall terminate pursuant to the foregoing sentence, all
persons entitled to exercise any unexercised portions of
Options then outstanding shall have the right, at such time
prior to the consummation of the transaction causing such
termination, as the Company shall designate, to exercise the
unexercised portions of their Options, including the portions
thereof which would, but for this paragraph entitled "Corporate
Reorganizations," not yet be exercisable.
15. Agreement and Representation of Employees.
(a) Acquiring Stock for Investment Purposes. As a condition to
the exercise of any Option, the Company may require the person
exercising such Option to represent and warrant at the time of
such exercise that any shares of Stock acquired at exercise are
being acquired only for investment and without any present
intention to sell or distribute such shares if, in the opinion
of Company's counsel, such representation is required or
desirable under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency.
(b) Withholding. With respect to the exercise of any Option
granted under this Plan, each Participant shall fully and
completely consent to whatever the Board directs to satisfy the
federal and state tax withholding requirements, if any, which
the Board in its discretion deems applicable to such exercise.
(c) Delivery. The Company is not obligated to deliver any
common shares until there has been qualification under or
compliance with all state or federal laws, rules and
regulations deemed appropriate by the Company. The Company
will use all reasonable efforts to obtain such qualification
and compliance.
16. Financial Assistance. The Company is vested with authority
under the Plan to assist, within the Company's discretion,
any employee to whom an Option is granted hereunder (including
any director or officer of the Company or any of its
Affiliates who is also an employee) in the payment of the
purchase price payable on exercise of that Option by lending
the amount of such purchase price to such employee on such
terms and at such rates of interest and upon such security
(or unsecured) as shall have been authorized by or under
authority of the Board.
17. Amendment and Termination of Plan. The Board, by
resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been
granted; provided however, that any amendment that would: (i)
increase the aggregate number of shares of common stock that
may be issued under the Plan; (ii) materially increase the
benefits accruing to Participants; or (iii) materially modify
the requirements as to eligibility for participation in the
Plan, shall be subject to shareholder approval within 12 months
before or after adoption. It is expressly contemplated
that the Board may amend the Plan in any respect necessary to
provide employees with the maximum benefits available
under and/or to satisfy the requirements of or amendments to
Section 422 of the Code.
No termination, modification or amendment of the Plan may
however, alter or impair the rights conferred by an
Option previously granted in any respect that is adverse to the
Participant without the consent of the Participant to
whom the Option was previously granted.
Unless sooner terminated, the Plan shall remain in effect for a
period of ten years from the date of the Plan's
adoption by the Board.
18. Use of Proceeds. The proceeds from the sale of shares
pursuant to Options granted under the Plan shall constitute
general funds of the Company.
19. Effective Date of Plan. The Effective Date of this Plan is
March 15, 1996, the date it was adopted by the Board, provided
the shareholders of the Company approve this Plan within twelve
(12) months after such effective date. Any Options granted
under this Plan prior to the date of shareholder approval shall
be deemed to be granted subject to such approval. Should
shareholder approval not be obtained within twelve (12) months,
any Options granted pursuant to the Plan shall be null and
void.
20. Indemnification of Committee. In addition to such other
rights of indemnification as they may have and subject to
limitations of applicable law, the members of the Committee
shall be indemnified by the Company against all costs and
expenses reasonably incurred by them in connection with any
action, suit or proceeding to which they or any of them
may be a party by reason of any action taken or failure to act
under or in connection with the Plan or any rights granted
thereunder and against all amounts paid to them in settlement
thereof or paid by them in satisfaction of a judgment of
any such action, suit or proceeding, the Board or Committee
member or members shall notify the Company in writing,
giving the Company an opportunity at its own cost to defend the
same before such Committee member or members undertake to
defend the same on their own behalf.
21. Information Requirements. The Company shall provide each
Participant with annual financial statements.
22. Governing Law. The Plan shall be governed by, and all
questions arising hereunder, shall be determined in accordance
with the laws of State of California as such laws are applied
to agreements between California residents entered into
and to be performed entirely within California.
